Compass Directions Afternoon Report Wednesday, 14 December 2011

Markets eased as the latest FOMC statement signalled to investors that another round of quantitative easing was becoming less likely as the US economy continues to expand despite increasing risks posed to the global economic growth outlook from the European debt crisis. The USD has managed to hold onto most of the significant gains it made overnight. Investors will be focussed on the credit markets tonight with an Italian auction of up to EUR 3 billion in long term bonds. The EUR is just holding above the psychologically important 1.3000 levels while the GBP has fallen below 1.5500.

The Westpac Consumer Sentiment figure surprised on the downside falling to a four month low as all the bad news surrounding Europe continues to impact on the consumer. The index broke three months of gains as it fell 8.3% to 94.7. Deputy RBA Governor Battelino also made comments today that negatively impacted on the AUD. He said that Australia would be affected by any slowdown in Europe and that if this were to happen “the ex-change rate of the Australian dollar would fall, as it has when global growth has weakened in the past.” The Australian dollar and New Zealand dollars are both trading near two week lows at 1.0000 and 0.7550 respectively.

Asian stocks fell with the MSCI Asia Pacific Index down by more than 0.5%. The Chinese Conference Board index declined 0.1% to 160.1 in October and this result fuelled concerns of a slowdown in the world’s second largest economy as exports fall and home sales slide. The Hang Seng Index is down 0.18% to 18,413 while the Nikkei fell 0.59% to 8,502. The ASX 200 recovered from earlier losses to close flat at 4,190 with consumer discretionary stocks gaining despite the weaker than expected consumer confidence data.

Commodity prices eased in trade today. Crude oil has held onto last night’s gains on the eve of the latest OPEC meeting in Vienna today to close the Asian session at $100.00. It is expected that OPEC will announce an output ceiling of 30 million barrels a day for the first half of next year. Precious metals remain heavy with gold falling to 8 week lows before recovering to $1,640 while silver is trading at $30.95. Soft commodities eased while copper fell 0.73%. Overnight we have the OPEC meetings and the release of the high impact UK employment figures and a series of medium impact data out of Switzerland, Canada, the US and Europe.

GOLD managed to recover some of the early morning losses seen in electronic trade in the US after the FOMC disappointed which lead to commodities being sold down along with equities and the USD gained. However, on the re-open in Asia we saw buying interest return and we managed to post some good gains as equities moved off the lows and the USD consolidated. Gold traded in a $1,622-42 range and finished the session higher by 0.50% at $1,640. Gold prices have come along way in recent sessions and we feel as though this move has been overdone and we should now start to see some buying interest return and if the USD gives up some of the recent gains and equities at least bounce we should see a move back towards $1,650 to start and then $1,700 which is now key resistance. Having said this, below $1,600 and we are in trouble with $1,585 in focus and below here $1,535 is on the cards. We must maintain closes above $1,600 for sentiment to improve and for the tend to remain in tact. The Daily and weekly charts look concerning but we have seen this before and if a run higher is going to occur it should be either tonight or tomorrow. Our fundamental view stays the same for now so that is why we are not short and rather wait for a bottom to get long again. If trading pure technicals we would still be short but bullish divergence is form g so we should see at least bounce. Resistance sits initially at $1,642 with a break testing $1,653. Above here and there is much more room to the upside.

AUD/USD moved back below parity during the morning session but the combination of China buying on the dip and Euro holding above the option barriers at 1.3000 has seen the market quickly turn off the idea that the pair will breakdown until the European session at the earliest. We close the book on the afternoon with the price at 1.0020 which is not far of the uneventful highs. Westpac Consumer Confidence data whilst its not a high impact number can’t be ignored as the release of last months +6.3% was seen as a positive and now we have this month in total reverse with the result being –8.3%. The building numbers against the Australian economy are gaining momentum and the movement by the RBA earlier this month is looking more correct by the day. These factors alone are the idea that not everything is rosy across the big brown land. We are looking for the price to break below the 0.9980 support during the European session on the back of building momentum and the Euro breaking 1.30.

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